Pension Benefits and Increasing Seniors Demographic

An increasing number of Canadians  are becoming concerned about their CPP benefits in light of the global economic turmoil. Among the greatest concerns are the prospect of a double dip recession, increased fiscal constraints, and a shrinking labour force of younger workers.  If there is a double dip recession governments might impose more fiscal constraints so there is the likelihood that much needed services and benefits for seniors will be reduced or eliminated.  The increase in the seniors demographic combined within a shrinking economy and a predicted decline in the labour force of younger workers will present a challenge to government revenues. This gloomy forecast does not bode well for the sustainability of the pension system. With recent statistics indicating there will be a slowing in the growth of the labour force there are serious concerns that the present pension system will not meet the needs of future retirees. Alarm bells about Canada’s fiscal health have been raised by Kevin Page, the current parliamentary budget officer, who “calculates that the provincial and federal governments’ fiscal structures aren’t sustainable over the long term due to an aging population and current economic trends.” The report presents a troubling financial picture for Canada in the long term if fiscal constraints are not put in place.

That the workforce will have to support a substantial number of older Canadians dependent on CPP benefits is cause for concern since that indicates our current pension system is clearly not sustainable in a fragile economy. A reduced workforce cannot  generate enough economic activity to cope with the pension needs of retirees. In a shrinking economy some seniors will  have to work past retirement age and compete for jobs with younger workers. Hence we have a scenario where many Canadians, whether retired or working, will undoubtedly experience a substantial drop in living standards. As deficits increase government spending will have to be curtailed and everyone, including seniors, will have to pay more taxes. A pension option put forward during the last federal election by Federal Minister Jim Flaherty’s is a ‘pooled pension plan’. This option, however, has not gained much traction.  (Check this link for full details of the ‘pooled pensions plan: http://www.fin.gc.ca/activty/pubs/pension/prpp-irpac-eng.asp) Minister Flaherty’s model or theory  is not clearly understood or accepted by Canadians. This ‘pooled pension’ option will be controlled by private enterprise and also the banks.  There is concern that there will not be adequate banking and financial regulations in place to administer this type of pension plan. Concerns are driven by the recent economic turbulence that the absence of adequate regulations wrought on economies around the globe. That devastation is attributed mostly to a lack of proper regulations and oversight in the financial industry. It brings to mind the unfortunate situation of what happened to the pension benefits of many Nortel employees in Canada. There should not be a repeat of a Nortel type fiasco. It is also a necessary part of the equation that those in the labour force must earn a living wage to participate in this option. Will future workers have to rely on erratic and unstable income from their private pension plans and/or RRSPs with this ‘pooled pension plan’ option? At the moment we are witness to storm clouds gathering on the horizon for many European countries and will have to accept that we in Canada are not immune to another economic downturn. Although many governments around the world are struggling to contain their deficits and stabilize their economies there is a strong possibility that most developed countries are about to sink back into a much deeper recession. There will be a  huge wealth gap as our middle class disappears. And if businesses are to survive in the long term proper planning should be in place for an organized transfer of skills and knowledge to younger workers as there will be a massive gap in skills and knowledge as seniors exit the labour force. A fragile economy will undoubtedly impact various services seniors depend on, the most important of which is health care.  And as the volume of our aging population increases we are likely to see the cost of health care services  along with other necessities rise dramatically in an economy that has a shrinking labour force.  Our governments have to recognize that serious economic and social problems will result if this combined challenge of a seniors tsunami and a fragile economy are not addressed in a calm, creative and balanced manner. A long term plan to address this serious challenge is imperative. Refer to this link:

Canada’s Aging Population: Seizing the Opportunity” http://www.parl.gc.ca/40/2/parlbus/commbus/senate/com-e/agei-e/rep-e/AgingFinalReport-e.pdf